35yo - optimizing future income

Age: 35
Spouse’s/Partner's age: 32

Annual gross income from employment or profession: €130,000 (plus expected bonus of €30k)
Annual gross income of spouse: €40,000

Monthly take-home pay: Approx. €8k

Type of employment: e.g. Civil Servant, self-employed: Both Private sector

In general are you: saving. €400 a month into 10 year education fund for kids. Another €1k a month saved as well. Will plan on lowering this once savings fund reaches €45k in rainy day fund.

Rough estimate of value of home: €560,000 - forever home
Amount outstanding on your mortgage: €435,000 (only bought house last year). Paying 2k a month. 28 years left.
What interest rate are you paying? 2.9% one year fixed

Other borrowings – car loans/personal loans etc: Car loan with 10k remaining but planning on paying this off in next few months.

Do you pay off your full credit card balance each month? N/A
If not, what is the balance on your credit card?

Savings and investments: €40,000 in cash savings. Preference to hold €40-50k for rainy day fund

Do you have a pension scheme? Yes, me a DC scheme, currently paying 10% of my salary each year, company pays 5% (only in place for last 3 years). Wife has a DB scheme currently paying 3% of her salary, company paying 5%.

Do you own any investment or other property? No

Ages of children: 2, 10. Childcare costs €800 a month

Life insurance: I have in work equal to 4 times base salary.


What specific question do you have or what issues are of concern to you?

I think the obvious first comment is that I should pay off the car loan asap instead of holding the level of savings and I do plan on doing this over next few months. This will free up an additional €300 a month.

While the outstanding mortgage is equal to 2.5 times gross salary, It feels like a high amount (particularly if the higher earner was to lose job etc) and I would like to reduce it as quickly as possible. Any advice on whether to reduce my DC contributions to 5% and look to overpay mortgage with lump sums as fixed term expires?

Wife has a DB pension scheme. Should she be paying more into the pension scheme or does this really matter if she has a defined benefit at pension paydown?

Feels like we should have more cash left at the end of each month but costs of kids and other household bills do add up unfortunately! In addition we have spent quiet a bit in updating house since we moved in last year but that should be all done for now. If there is anything else you would recommend, happy to consider! thanks

2012Savings said:

Ages of children: 2, 10.

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Do you plan on more kids?

Not planning on it!

What sort of rainy day are you expecting?

Both of your employers fire you without notice and without any redundancy payment? Oh, and the state changes its rules and no longer pays statutory redundancy either.

You do not need a rainy day fund as your income and expenditure is fairly predictable. If that changes, then you might need to build up a fund.

And if you anticipate other expenditure such as a new car or home improvements, you should build up your savings for them.

You don't say what the interest rate on your car loan is, but you should clear this immediately if the rate is higher than your mortgage.

We say it time and time again on askaboutmoney, the best place for your education fund is to pay down your mortgage. You will get a guaranteed , risk-free, and tax-free return of 2.9%

Your current LTV is 435/560 = 78%

You should be able to get a lower interest rate, if you reduce your LTV. Paying €50k off your mortgage would bring it down to 385/560 69%.
Another €50k would bring it down below €60k. That should be your target.

When you get your LTV down to 60% either by capital repayments or through house price increases, then you should look at boosting your contributions to your pension fund.

Brendan

Thanks for the response. Yes the car loan is at a higher rate and I will pay that off asap from the current savings. Regarding the rainy day fund, I suppose I just want to have a level of savings in place to cover 6 months or so expenditure in a worst case scenario. In addition will probably be looking to upgrade car in next year or two so can dip into those funds for that.

Thanks